FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended September 30, 1999
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission file number 1-4743
------
Standard Motor Products, Inc.
-----------------------------
(Exact name of registrant as specified in its charter)
New York 11-1362020
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37-18 Northern Blvd., Long Island City, N.Y. 11101
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(718) 392-0200
--------------
(Registrant's telephone number, including area code)
None
----
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Date Class Shares Outstanding
---- ----- ------------------
Common stock par
October 31, 1999 value $2.00 per share 12,996,022
---------------- --------------------- ----------
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL AND OTHER INFORMATION
SEPTEMBER 30, 1999
PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1 Page No.
- ------ --------
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998 3 & 4
CONSOLIDATED STATEMENTS OF EARNINGS AND
RETAINED EARNINGS for the Three-Month and
Nine-Month periods ended September 30, 1999 and 1998 5
CONSOLIDATED STATEMENTS OF CASH FLOWS for the
Nine-Month periods ended September 30, 1999 and 1998 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 - 11
Item 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12 - 15
PART II - OTHER INFORMATION
---------------------------
Item 6
- ------
Exhibits and Reports on Form 8-K 16 - 17
Signature 17
2
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1999 1998
- ---------------------------------------------------------------------------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 32,751 $ 23,457
Accounts receivable, less allowances
for discounts and doubtful accounts
of $8,408 (1998 - $4,525)(Note 10) 193,511 122,008
Inventories (Note 2) 168,138 174,092
Deferred income taxes 11,723 11,723
Prepaid expenses and other current assets 14,293 11,231
-------- --------
Total current assets 420,416 342,511
Property, plant and equipment, net (Note 3) 111,182 109,404
Goodwill, net 41,418 39,232
Other assets (Note 8) 34,084 30,409
-------- --------
Total assets $607,100 $521,556
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for shares and per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
September 30, December 31,
1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
Current liabilities:
<S> <C> <C>
Notes payable - banks $ 2,181 $ 3,555
Current portion of long-term debt (Note 6) 23,413 22,404
Accounts payable 40,201 48,414
Sundry payables and accrued expenses 79,756 60,905
Accrued customer returns 21,273 16,296
Payroll and commissions 12,415 12,613
--------- ---------
Total current liabilities 179,239 164,187
Long-term debt (Note 6) 179,457 133,749
Postretirement benefits other than pensions
and other accrued liabilities 19,572 18,595
--------- ---------
Total liabilities 378,268 316,531
========= =========
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 5 and 6):
Common stock-par value $2.00 per share:
Authorized - 30,000,000 shares Issued -
13,324,476 shares in 1999 and 1998
(including 228,454 and 268,126 shares
held as treasury shares in 1999 and
1998, respectively) 26,649 26,649
Capital in excess of par value 2,666 2,951
Retained earnings 203,586 181,679
Accumulated other comprehensive income (loss) 663 (516)
--------- ---------
233,564 210,763
Less: treasury stock-at cost 4,732 5,738
--------- ---------
Total stockholders' equity 228,832 205,025
--------- ---------
Total liabilities and stockholders' equity $ 607,100 $ 521,556
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Dollars in thousands, except for shares and per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three-Months Ended For the Nine-Months Ended
September 30, September 30,
----------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 189,759 $ 201,293 $ 572,262 $ 536,104
Cost of sales 127,627 138,885 391,821 366,834
------------ ------------ ------------ ------------
Gross profit 62,132 62,408 180,441 169,270
Selling, general and
administrative expenses 42,892 45,026 130,253 130,706
------------ ------------ ------------ ------------
Operating income 19,240 17,382 50,188 38,564
Other income (expense) - net 14 (1,734) (815) (1,387)
------------ ------------ ------------ ------------
Earnings before interest, taxes,
minority interest and extraordinary item 19,254 15,648 49,373 37,177
Interest expense 4,017 4,346 12,260 12,826
------------ ------------ ------------ ------------
Earnings before taxes,
minority interest and extraordinary item 15,237 11,302 37,113 24,351
Minority interest (76) (64) (255) (198)
Income taxes (Note 4) 4,588 1,664 10,604 3,287
------------ ------------ ------------ ------------
Earnings before extraordinary item 10,573 9,574 26,254 20,866
Extraordinary loss on early extinguishment
of debt, net of taxes of $707 1,060 -- 1,060 --
------------ ------------ ------------ ------------
Net Earnings $ 9,513 $ 9,574 $ 25,194 $ 20,866
============ ============ ============ ============
Retained earnings at beginning of period $ 195,258 $ 172,806 $ 181,679 $ 161,514
------------ ------------ ------------ ------------
204,771 182,380 206,873 182,380
Less: cash dividends for period 1,185 1,048 3,287 1,048
------------ ------------ ------------ ------------
Retained earnings at end of period $ 203,586 $ 181,332 $ 203,586 $ 181,332
============ ============ ============ ============
Per Common share data:
Net earnings per common share:
Basic earnings per share before extraordinary item $ 0.80 $ 0.73 $ 2.00 $ 1.59
Extraordinary loss on early extinguishment of debt (0.08) -- (0.08) --
============ ============ ============ ============
Net earnings per common share - basic $ 0.72 $ 0.73 $ 1.92 $ 1.59
============ ============ ============ ============
Diluted earnings per share before extraordinary item $ 0.74 $ 0.72 $ 1.94 $ 1.58
Extraordinary loss on early extinguishment of debt (0.07) -- (0.08) --
============ ============ ============ ============
Net earnings per common share - diluted $ 0.67 $ 0.72 $ 1.86 $ 1.58
============ ============ ============ ============
Dividends per common share $ 0.09 $ 0.08 $ 0.25 $ 0.08
Average number of common shares 13,157,864 13,080,996 13,127,581 13,086,736
============ ============ ============ ============
Average number of common and
dilutive common shares 15,141,598 13,222,161 13,852,370 13,182,674
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine-Months Ended
September 30,
-------------------------
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 25,194 $ 20,866
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 13,176 13,703
Loss on disposal of property, plant and equipment -- 226
Loss on repayment of debt 1,767 --
Change in assets and liabilities,
net of effects from acquisitions:
(Increase) decrease in accounts receivable, net (63,052) (32,008)
(Increase) decrease in inventories 14,297 54,417
(Increase) decrease in other assets (1,121) 2,389
Increase (decrease) in accounts payable (11,950) 3,088
Increase (decrease) in other current
assets and liabilities (537) 2,505
Increase (decrease)in sundry payables
and accrued expense 21,542 29,149
-------- --------
Net cash (used in) provided by operating activities (684) 94,335
======== ========
Cash flows from investing activities
Proceeds from the sale of property, plant & equipment -- 201
Capital expenditures, net of effects from acquisitions (9,991) (11,738)
Proceeds from divestitures -- 4,160
Payments for acquisitions, net of cash acquired (17,381) --
-------- --------
Net cash used in investing activities (27,372) (7,377)
======== ========
Cash flows from financing activities:
Net repayments under line-of-credit agreements (1,334) (53,121)
Proceeds from issuance of long-term debt 86,941 700
Principal payments and retirement of long-term debt (44,573) (4,184)
Reduction of loan to ESOP -- 1,665
Proceeds from exercise of employee stock options 1,831 1,040
Purchase of treasury stock (2,848) (2,161)
Dividends paid (3,287) (1,048)
-------- --------
Net cash provided by (used in) financing activities 36,730 (57,109)
======== ========
Effect of exchange rate changes on cash 620 (363)
Net increase in cash 9,294 29,486
Cash and cash equivalents at beginning of the period 23,457 16,809
-------- --------
Cash and cash equivalents at end of the period $ 32,751 $ 46,295
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 12,202 $ 13,560
======== ========
Income taxes $ 3,887 $ 237
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited financial information should be read in conjunction
with the consolidated financial statements, including the notes thereto, for the
year ended December 31, 1998.
The consolidated financial statements include the accounts of the Company and
all domestic and international companies in which the Company has more than a
50% equity ownership. The Company's investments in unconsolidated affiliates are
accounted for on the equity method. All significant inter-company items have
been eliminated.
Management acknowledges its responsibility for the preparation of the
accompanying interim consolidated financial statements which reflect all
adjustments considered necessary, in the opinion of management, for a fair
statement of the results of interim periods presented. The results of operations
for the interim periods are not necessarily indicative of the results of
operations for the entire year.
NOTE 2
Inventories
-----------
(Dollars in Thousands)
September 30, 1999 December 31, 1998
(unaudited)
------------------- ------------------
Finished Goods $111,755 $120,108
Work in Process 4,933 4,867
Raw Materials 51,450 49,117
-------- --------
Total inventories $168,138 $174,092
======== ========
NOTE 3
Property, Plant and Equipment
-----------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
(unaudited)
------------------- ------------------
<S> <C> <C>
Land, buildings and improvements $65,559 $ 64,080
Machinery and equipment 92,769 88,282
Tools, dies and auxiliary equipment 10,872 8,412
Furniture and fixtures 23,301 21,542
Leasehold improvements 6,462 5,130
Construction in progress 19,046 18,068
------ ------
218,009 205,514
Less accumulated depreciation 106,827 96,110
------- ------
Total property,
plant and equipment - net $111,182 $109,404
======== ========
-----------------------------------------------------------------------------
</TABLE>
7
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4
The provision for taxes is less than the normal statutory rate primarily because
operating earnings of a subsidiary operating in Puerto Rico, amounting to
approximately $4,752,000 and $5,576,000 for the nine-months ended September 30,
1999 and 1998 and $1,582,000 and 1,813,000 for the three-months ended September
30, 1999 and 1998, respectively, are exempt from United States income taxes and
are partially exempt from Puerto Rican income taxes.
NOTE 5
During the nine month period ended September 30, 1999, the Company granted
options to purchase 136,000 shares of common stock. The exercise price of each
option granted is equal to, or greater than, the fair value of the Company's
common stock on the date of grant.
At September 30, 1999, 869,154 shares of authorized but unissued common stock
were reserved for issuance under the Company's stock option plans, of which
821,490 shares were subject to outstanding options. 400,676 of these outstanding
options were vested at September 30, 1999.
NOTE 6
Long-Term Debt
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
(unaudited)
------------------- -----------------
Long Term Debt Consists of:
<S> <C> <C>
6.75% convertible subordinated
debentures $ 90,000 $ --
7.56% senior note payable 73,000 73,000
8.60% senior note payable -- 37,143
10.22% senior note payable 21,500 21,500
Credit Facility ($10 Million Canadian) 6,791 10,960
5.0% Notes Payable - AlliedSignal 3,000 3,000
6.75% - 7.50% Facilities 5,325 6,411
5.00% - 10.5% Purchase Obligations 2,332 2,833
Other 922 1,306
-------- --------
202,870 156,153
Less current portion 23,413 22,404
-------- --------
Total noncurrent portion of
long-term debt $179,457 $133,749
======== ========
</TABLE>
On July 26, 1999, the Company completed a public offering of convertible
subordinated debentures amounting to $90,000,000. The Convertible Debentures
carry an interest rate of 6.75%, payable semi-annually, and will mature on July
15, 2009. The Debentures are convertible into approximately 2,796,000 shares of
the Company's common stock. The Company may, at its option, redeem some or all
of the Debentures at any time on or after July 15, 2004, for a redemption price
equal to the issuance price plus accrued interest. In addition, if a change in
control, as defined, occurs at the Company, the Company will be required to make
an offer to purchase the convertible debentures at a purchase price equal to
101% of their aggregate principal amount, plus accrued interest. The Company
incurred fees in relation to the offering of approximately $3,100,000. To date,
net proceeds have been used to pre-pay the 8.6% senior note payable, including
prepayment penalties, and to pay down short term bank borrowings.
8
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 (CONTINUED)
Under the terms of the $73,000,000 senior note agreement, the Company is
required to repay the loan in seven equal annual installments beginning in 2000.
Under the terms of the $37,143,000 senior note agreement, the Company was
required to repay the loan in four equal annual installments from 1999 through
2002. On July 26, 1999 the Company prepaid the entire outstanding balance of
$37,143,000. In connection with this prepayment, the Company incurred a
$1,060,000, net of taxes, extraordinary loss for prepayment penalties and the
write-off of deferred loan costs. The prepayment penalties were funded by a
portion of the proceeds of the $90,000,000 Convertible Subordinated Debentures.
Under the terms of the $21,500,000 senior note agreement, the Company is
required to repay the loan in five varying annual installments beginning in
1999. Subject to certain restrictions, the Company may make prepayments without
premium.
Under the terms of the $10,000,000 CDN credit agreement, the Company is required
to repay the loan as follows: $2,000,000 CDN in 2000 and 2001 and a final
payment of $6,000,000 CDN in 2002. Subject to certain restrictions, the Company
can make prepayments without premium. The credit agreement has various interest
rate options.
Under the terms of the unsecured $3,000,000 note agreement with AlliedSignal,
the Company is required to repay $2,000,000 in the fourth quarter of 1999, with
a final payment of $1,000,000 due in 2000.
The Company holds a 73.6% equity interest in Standard Motor Products Holdings
Limited, formerly Intermotor Holdings Limited, which has various existing credit
facilities which mature by 2003.
The purchase obligations, due under agreements with municipalities, mature in
annual installments through 2003, and are secured by certain property, plant,
and equipment.
The senior note agreements contain restrictive covenants which require the
maintenance of defined levels of working capital, tangible net worth and
earnings and limit, among other items, investments, indebtedness and
distributions for the payment of dividends and the acquisition of capital stock.
NOTE 7
In January 1999, the Company acquired through its European subsidiary Standard
Motor Products Holdings Limited, 85% of the stock of Webcon UK Limited, and
through its UK joint venture Blue Streak Europe Limited, Webcon's affiliate
Injection Correction UK Limited. The total acquisition price amounted to
approximately $3,500,000 and was funded from the Company's operating cash flow.
In February 1999, the Company acquired 100% of the stock of Eaglemotive
Corporation for approximately $12,400,000. Located in Fort Worth Texas,
Eaglemotive assembles and distributes fan clutches and other cooling products to
the automotive aftermarket.
The acquisition was funded from short term borrowings.
In April 1999, the Company acquired Lemark Auto Accessories Limited, a United
Kingdom based manufacturer and distributor primarily of ignition wire and other
engine management products. The acquisition price amounted to approximately
$1,900,000 and was funded from short term borrowings.
These acquisitions have been accounted for as purchases, and resulted in
goodwill of $4,582,000 which is being amortized over its estimated useful life
of 15 years.
NOTE 8
Other assets primarily consist of certain held-to-maturity securities,
unamortized customer supply agreements, deferred long term debt fees, equity in
joint ventures and pension assets.
9
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9
Total comprehensive income was $9,729,000 and $8,537,000 for the three-month
periods ended September 30, 1999 and 1998, respectively and $26,373,000 and
$19,694,000 for the nine-month periods ended September 30, 1999 and 1998
respectively.
NOTE 10
The Company sells certain accounts receivable to its wholly-owned subsidiary,
SMP Credit Corp., a qualifying special-purpose corporation. In June 1999, SMP
Credit Corp., entered into a new three year agreement whereby it can sell up to
a $25,000,000 undivided ownership interest in a designated pool of certain of
these eligible receivables. The agreement as renewed contains similar terms and
conditions as our previous agreement and expires in March 2002.
NOTE 11
Following is a reconciliation of the shares used in calculating basic and
dilutive net earnings per common share:
<TABLE>
<CAPTION>
For the Three-Months For the Nine-Months
Ended Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Weighted average common shares
<S> <C> <C> <C> <C>
outstanding 13,157,864 13,080,996 13,127,581 13,086,736
Effect of dilutive securities -
options 119,654 141,165 103,429 95,938
Dilutive effect of convertible
subordinated debentures 1,864,080 -- 621,360 --
---------- ---------- ---------- ----------
Weighted average common
equivalent shares
outstanding 15,141,598 13,222,161 13,852,370 13,182,674
assuming dilution
========== ========== ========== ==========
</TABLE>
NOTE 12
The Company's two reportable operating segments, Engine Management and
Temperature Control, are the areas within the automotive aftermarket in which
the Company operates. The following tables contain financial information for
each reportable segment.
Industry Segments
(Dollars in thousands)
For the three-months ended September 30
-----------------------------------------------------------
1999 1998
----------------------------- -------------------------
Operating Operating
Net Sales Income Net Sales Income
--------- ------ --------- ------
Engine Management 81,196 6,513 84,868 8,665
Temperature Control 106,532 14,251 114,159 10,936
Other Adjustments 2,031 (1,524) 2,266 (2,219)
------- ------ ------- ------
Consolidated 189,759 19,240 201,293 17,382
======= ====== ======= ======
10
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 (CONTINUED)
For the nine-months ended September 30
-----------------------------------------------------
1999 1998
------------------------- ------------------------
Operating Operating
Net Sales Income Net Sales Income
--------- ------ --------- ------
Engine Management 253,530 23,057 269,888 31,527
Temperature Control 315,207 37,965 261,368 26,279
Other Adjustments 3,525 (10,834) 4,848 (19,242)
------- ------- ------- -------
Consolidated 572,262 50,188 536,104 38,564
Other adjustments consist of items pertaining to the corporate headquarters
function and a Canadian business unit that does not meet the criteria of a
reportable segment.
The following table reconciles the measure of profit used in the previous
disclosure to the Company's consolidated Earnings before taxes, minority
interest and extraordinary item:
For the three-months For the nine-months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Operating income 19,240 17,382 50,188 38,564
Other income (expense) 14 (1,734) (815) (1,387)
Interest Expense 4,017 4,346 12,260 12,826
Earnings before
taxes, minority
interest and
extraordinary item 15,237 11,302 37,113 24,351
11
<PAGE>
STANDARD MOTOR PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSIONS AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS
WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS
FORM 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first nine-months of 1999, cash used in operations amounted to
$684,000, compared to $94,335,000 of cash provided in the first nine-months of
1998. This decrease is due primarily to a smaller decrease in inventories, as we
were unable to duplicate the significant reductions achieved in the prior year,
with lower Engine Management sales a contributing factor. In addition, accounts
receivable has been unfavorably impacted by terms offered to customers, not
available to the same extent in the prior year, such as the spring promotion in
our Temperature Control Division. Cash used in investing activities amounted to
$27,372,000 in the first nine-months of 1999 and $7,377,000 for the comparable
period in 1998. The increase is mainly due to the acquisitions of Eaglemotive
Corporation, Webcon UK Limited and Lemark Auto Accessories Limited, as discussed
below. Capital expenditures amounted to $9,991,000 during the first nine-months
of 1999 and $11,738,000 for the comparable period in 1998. Cash provided by
financing activities totaled $36,730,000 in the first nine-months of 1999, while
in the prior year cash used in financing activities amounted to $57,109,000.
This change is primarily due to the public offering of $90 million of
subordinated convertible debentures completed in the third quarter of 1999.
During the first nine-months of 1999, the Company paid dividends amounting to
$3,287,000, compared to $1,048,000 paid in the comparable period for 1998. On
October 25, 1999 the Board of Directors approved a quarterly dividend of $.09
per share, to be paid on December 1, 1999 to stockholders of record on November
15, 1999.
On July 26, 1999 the Company issued 6.75% Convertible Subordinated Debentures in
the aggregate principal amount of $90,000,000. The Debentures are convertible
into approximately 2,796,000 shares of the Company's common stock. The
Convertible Debentures pay interest semi-annually and mature on July 15, 2009.
The proceeds from the Convertible Debentures were used to prepay the 8.6% senior
note payable in the amount of $37,143,000 plus a prepayment penalty, reduce
short term bank borrowings and for general corporate purposes.
On November 30, 1998, the Company entered into a new three year revolving credit
facility. The facility, with eight lending institutions, provides a $110,000,000
unsecured line of credit, subject to a borrowing base. The facility allows the
Company to select from two interest rate options, one a function of LIBOR, and
the other a function of the U.S. prime rate. The spread above each interest rate
option is determined by the Company's ratio of consolidated debt to earnings
before interest, taxes, depreciation and amortization. The interest rates
available to the Company under this facility compare favorably with the short
term interest rates obtained by the Company during most of 1998 and result in a
lower effective interest rate in 1999 compared to 1998.
In June of 1999 the Company renewed its agreement to sell certain of its
accounts receivable. The Company presently has $25,000,000 of accounts
receivable sold under this agreement, which expires March 31, 2002.
As of September 30, 1999 the Company had stockholders' equity of $228,832,000
and working capital of $241,177,000. Capital expenditures, primarily for new
machinery and equipment, are expected to be approximately $5 million for the
remainder of 1999.
In January 1999, the Company acquired, through its European subsidiary Standard
Motor Products Holdings Limited, 85% of the stock of Webcon UK Limited. The
Company also acquired through its United Kingdom joint venture Blue Streak
Europe Limited, Webcon's affiliate Injection Correction UK Limited. The total
acquisition price amounted to approximately $3,500,000 and was funded from the
Company's operating cash flow.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (Continued)
- -------------------------------------------
In February 1999, the Company acquired 100% of the stock of Eaglemotive
Corporation for approximately $12,400,000. Located in Fort Worth Texas,
Eaglemotive assembles and distributes fan clutches and other cooling products to
the automotive aftermarket. The acquisition was funded from short term
borrowings.
In April 1999, the Company acquired Lemark Auto Accessories Limited, a United
Kingdom based manufacturer and distributor primarily of ignition wire and other
engine management products. The acquisition price amounted to approximately
$1,900,000 and was funded from short term borrowings.
INTERIM RESULTS OF OPERATIONS
- -----------------------------
Comparison of the three-months ended September 30, 1999 to the three-months
ended September 30, 1998
- ----------------------------------------------------------------------------
Net sales for the current quarter decreased by $11,534,000 or 5.7% from the
comparable period in 1998. Excluding revenues from acquisitions not present in
the third quarter of last year, revenues decreased by $22,700,000 or 11.3%. This
sales decrease is primarily due to the preseason selling program for temperature
control products in the first quarter of 1999, which resulted in a shift in
sales from the second and third quarter of 1999 into the first quarter, and to
lower sales of engine management products resulting from the sale of the fuel
pump business in the third quarter of 1998 and reduced orders from a major
customer, as they absorbed inventory acquired from APS Holding Corporation.
Although sales decreased in the third quarter of 1999, gross profit remained
relatively flat from the comparable period in 1998, reflecting synergies
obtained from the acquisition of the Cooper Industries temperature control
business. Gross margin as a percent of net sales increased to 32.7% in the third
quarter of 1999 from 31.0% in the third quarter of 1998. This increase is
attributable to improvements primarily in the temperature control business,
resulting from efficiencies achieved from consolidating the Cooper Industries
temperature control business with the Company's existing Temperature Control
Division.
Selling, general and administrative (S.G. & A.) expenses decreased by $2,134,000
or 4.7% over the comparable quarter in 1998, reflecting continued focus on cost
reduction efforts. As a percent of net sales, S.G. & A. expenses increased by
0.2 percentage points (22.6% in 1999 versus 22.4% in 1998), primarily due to
decreased sales.
Operating income increased by $1,858,000 or 10.7% over the comparable quarter in
1998, primarily as a result of the efficiencies and cost reduction efforts
described above. As a percentage of net sales, operating income increased to
10.1% in 1999 from 8.6% in 1998.
Results of the Engine Management Division, as compared to a year ago, reflected
a reduction in operating income of $2,152,000 as a result of lower sales, shifts
in sales mix and changes in overhead absorption. The sales decline was primarily
the result of the divestiture of the fuel pump business which occurred in the
third quarter of 1998 and lower orders from a major customer as they absorbed
inventory acquired from APS Holding Corporation. The underabsorption of overhead
experienced at certain facilities was a result of the divestiture of the Service
Line business, which shared these facilities. Plans are currently being
developed which should reduce these costs.
The Temperature Control Division improved operating income by $3,315,000,
compared to a year ago, primarily due to efficiencies achieved from
consolidating the Cooper Industries Temperature Control business with the
Company's existing Temperature Control Division. The synergies achieved impacted
both gross margin and S.G. & A. expenses.
Other income - net for the third quarter of 1999 increased by $1,748,000, as the
third quarter of 1998 was negatively impacted by a $2,000,000 charge pertaining
to losses recognized in connection with the Company's Canadian and Chinese joint
ventures.
Interest expense for the third quarter decreased by $329,000 as compared to
1998, primarily due to more favorable borrowing rates.
13
<PAGE>
INTERIM RESULTS OF OPERATIONS (Continued)
- -----------------------------------------
Comparison of the three-months ended September 30, 1999 to the three-months
ended June 30, 1998
- ---------------------------------------------------------------------------
Taxes based on earnings increased by $2,924,000 primarily due to improved
pre-tax earnings and a higher effective tax rate. At December 31, 1998, the
Company had a $14,171,000 deferred tax asset valuation allowance. No adjustments
to this valuation allowance were deemed necessary during the three-month period
ended September 30, 1999, however management continues to evaluate the
likelihood of achieving sufficient future profitability that would enable the
Company to utilize all or a portion of these deferred tax assets. If management
determines, based upon these evaluations, that it is more likely than not that
the deferred tax assets will be realized, then the valuation allowance will be
adjusted.
On July 26, 1999 the Company prepaid the entire outstanding balance of the 8.6%
senior note payable in the amount of $37,143,000. In connection with this
prepayment, the Company incurred a $1,060,000, net of taxes, extraordinary loss
for prepayment penalties and the write-off of deferred loan costs.
INTERIM RESULTS OF OPERATIONS
- -----------------------------
Comparison of the nine-months ended September 30, 1999 to the nine-months ended
September 30, 1998
- -------------------------------------------------------------------------------
Net sales for the nine month period increased by $36,158,000, or 6.7% from the
comparable period in 1998. Excluding revenues from acquisitions not present in
the first nine-months of the prior year, revenues decreased by approximately
$21,978,000, or 4.1%, as increased temperature control sales, excluding
acquisitions, were more than offset by a decrease in Engine Management sales.
Gross profit for the first nine-months of 1999 increased by $11,171,000, or 6.6%
from the comparable period in 1998, reflecting increased sales from the
acquisition of the Cooper Industries temperature control product business. The
gross margin as a percent of net sales remained relatively flat for the first
nine-months of 1999 as synergies achieved from the consolidation of the Cooper
Industries temperature control business were offset by a shift in sales mix and
changes in overhead absorption at the Company's Engine Management Division. The
gross margin percentage also was negatively impacted by discounts related to the
pre-season selling program at the Temperature Control Division, which were not
present in 1998.
Selling, general and administrative (S.G. & A.) expenses decreased by $453,000
over the comparable period in 1998. As a percent of net sales, S.G. & A.
expenses decreased by 1.6 percentage points (22.8% in 1999 versus 24.4% in
1998). This percentage improvement is primarily due to the leverage achieved
from higher sales and synergies realized from the consolidation of the Cooper
Industries temperature control business, and to lower customer acquisition and
overhead expenses resulting from the Company's restructuring and cost reduction
programs implemented in 1998. Additional cost reductions from the consolidation
of the Cooper Industries temperature control business are expected to continue,
with the full implementation scheduled to be completed early in the year 2000.
Operating income increased by $11,624,000, or 30.1% over the comparable period
in 1998. While the Company began to realize the benefits of the aforementioned
operating synergies and cost reduction programs during the nine months of 1999,
operating income during the comparable period in 1998 was negatively impacted by
a provision of $1.5 million to write down various assets pertaining to the
Company's fuel pump business. As a percentage of net sales, operating income
improved during the first nine-months of the year to 8.8% in 1999 from 7.2% in
1998.
Results of the Engine Management Division, as compared to a year ago, reflected
a reduction in operating income of $8,470,000 due to lower sales, shifts in
sales mix and changes in overhead absorption. The sales decline was primarily
the result of the divestiture of the fuel pump business which occurred in the
third quarter of 1998 and lower orders from a major customer as they absorbed
inventory acquired from APS Holding Corporation. The Company believes that these
inventories should be absorbed by mid-year 2000, with sales returning to normal
levels at that time. The underabsorption of overhead experienced at certain
facilities has also been impacted by the divestiture of the Service Line
business, which shared these facilities. Plans are currently being developed
which should reduce these costs.
The Temperature Control Division improved operating income by $11,686,000,
compared to a year ago, primarily due to incremental sales volume of
$53,839,000. The increased sales resulted from the Cooper Temperature control
business and, to a lesser extent, the acquisition of Eaglemotive Corporation.
Efficiencies achieved from consolidating the Cooper Industries Temperature
Control business also improved operating income. The first quarter of 1998 did
not reflect the results of the Cooper Temperature Control business, which was
acquired on March 28, 1998.
14
<PAGE>
INTERIM RESULTS OF OPERATIONS (continued)
- -----------------------------------------
Comparison of the nine-months ended September 30, 1999 to the nine-months ended
September 30, 1998
- -------------------------------------------------------------------------------
Other expense - net for the first nine-months of 1999 decreased by $572,000, as
the first nine-months of 1998 reflect higher losses in connection with the
Company's Canadian and Chinese joint ventures.
Interest expense decreased by $566,000 compared to 1998, primarily due to more
favorable borrowing rates.
Taxes based on earnings increased by $7,317,000 primarily due to improved
pre-tax earnings. At December 31, 1998, the Company had a $14,171,000 deferred
tax asset valuation allowance. No adjustments to this valuation allowance were
deemed necessary during the nine month period ended September 30, 1999, however
management continues to evaluate the likelihood of achieving sufficient future
profitability that would enable the Company to utilize all or a portion of these
deferred tax assets. If management determines, based upon these evaluations,
that it is more likely than not that the deferred tax assets will be realized,
then the valuation allowance will be adjusted.
As previously discussed, on July 26, 1999 the Company prepaid the entire
outstanding balance of the 8.6% senior note payable in the amount of
$37,143,000. In connection with this prepayment, the Company incurred a
$1,060,000, net of taxes, extraordinary loss for prepayment penalties and the
write-off of deferred loan costs.
Year 2000
- ---------
The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the Year 1900 rather than the Year
2000, which could result in miscalculations or system failures.
The Company has established a comprehensive response to its Year 2000 exposure.
Generally, the Company has Year 2000 exposure in two areas: (i) its information
technology("IT") systems and (ii) its non-IT systems. At June 1998, the Company
had completed an inventory of its internal IT systems and made a preliminary
determination of which programs were or were not Year 2000 compliant. During the
period ending December 1998, the Company tested each significant IT system which
is believed to be Year 2000 compliant. In some cases, Year 2000 issues will be
corrected in the development of new programs, which enhance or provide new
functionality to these financial and management operating systems. The Company
estimates the cost of this effort to be approximately $1.4 million, which
includes capital costs for new computers and related equipment. The Company
substantially completed Year 2000 testing and remediation on its critical
information technology systems in June 1999 and expects to substantially
complete Year 2000 testing and remediation on its non-critical information
technology systems and non-information technology systems by the end of November
1999.
As of September 30, 1999, the Company has conducted surveys with suppliers,
customers, financial institutions and others with which it conducts business to
determine the extent to which the Company would be vulnerable to these third
parties' failure to remediate their own potential Year 2000 problems. The
inability of these other significant business partners to adequately address the
Year 2000 issues could cause disruption of the Company's operations. The Company
does not believe there will be a material risk of disruption from third party
failures.
The Company does not presently anticipate that the cost to address the Year 2000
issue will have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
Although the Company expects its internal IT and non-IT systems to be Year 2000
compliant as described above, the Company intends to prepare a contingency plan
that will specify what it plans to do if it or important external companies are
not Year 2000 compliant in a timely manner. These contingency plans will address
the most likely worst case Year 2000 scenarios. These plans are being finalized
and are expected to be completed the end of November 1999.
15
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibit(s)
----------
Number Description Method of Filing
------ ----------- ----------------
4.1 Form of Subordinated Debenture Indenture (including
form of convertible debenture) (incorporated by
reference to Exhibit 4.1 to Amendment No. 2 to the
Registration Statement on Form S-3 (333-79177) filed
on July 20, 1999.) *
10.14 Form of First Amendment, dated as of December 8, 1998
to the Credit Agreement, dated as of November 30, 1998,
among Standard Motor Products, Inc., Lenders party thereto,
The Chase Manhattan Bank and Canadian Imperial Bank of
Commerce (incorporated by reference to Exhibit 10.14 to
Amendment No. 2 to the Registration Statement on Form S-3
(333-79177) filed on July 20, 1999.) *
10.15 Form of Second Amendment, dated as of July 16, 1999 to
the Credit Agreement, dated as of November 30, 1998,
among Standard Motor Products, Inc., Lenders party thereto,
The Chase Manhattan Bank and Canadian Imperial Bank of
Commerce (incorporated by reference to Exhibit 10.15 to
Amendment No. 2 to the Registration Statement on Form S-3
(333-79177) filed on July 20, 1999.) *
10.16 Credit Agreement of March 31, 1998, as amended &
restated as at November 30, 1998, between the Registrant
and Canadian Imperial Bank of Commerce ("CIBC") is included
as Exhibit 10.16 *
23.1 Consent of KPMG LLP, Independent Auditors (incorporated by
reference to Exhibit 23.1 to Amendment No. 2 to the
Registration Statement on Form S-3 (333-79177) filed on
July 20, 1999.) *
23.2 Consent of KPMG LLP, Independent Auditors (incorporated by
reference to Exhibit 23.1 to the Registration Statement on
Form S-3 (333-83339) filed on July 21, 1999.) *
23.3 Consent of Kelley Drye & Warren LLP (incorporated by
reference to Exhibit 23.2 to Amendment No. 2 to the
Registration Statement on Form S-3 (333-79177) filed on
July 20, 1999.) *
16
<PAGE>
Number Description Method of Filing
23.4 Consent of Kelley Drye & Warren LLP (incorporated by reference
to Exhibit 23.2 to the Registration Statement
on Form S-3 (333-79177) filed on July 20, 1999.) *
24 Powers of Attorney of Directors and Certain Officers of
Standard Motor Products, Inc. (incorporated by reference
to Exhibit 24 to the Registration Statement on Form S-3
(333-79177) filed on May 24, 1999.) *
27 Financial Data Schedule Filed with
this Document
* Incorporated by reference
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed for this period.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STANDARD MOTOR PRODUCTS, INC.
-----------------------------
(Registrant)
November 12, 1999 /S/ James J. Burke
- ----------------- ------------------
(Date) Vice President Finance
Chief Financial Officer
17
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